BHP to spin off non-core assets: What’s in it for shareholders

Aluminium, bauxite and nickel assets reported to be on the table

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Mining giant BHP Billiton (ASX: BHP) is reported to be considering selling off non-core assets, which could create a separate $20 billion company, and is great news for shareholders.

The Australian Financial Review (AFR) reports that assets including aluminium, nickel and bauxite could be spun off into a new $20 billion resources company, which could be triple-listed on the Australian, London and South African stock exchanges.

As part of CEO Andrew Mackenzie’s plan to streamline the resources company, BHP wants to focus on iron ore, coal, copper and petroleum. A fifth ‘pillar’ is likely to be potash, which the miner has identified as likely to be a major player in the world’s plans to feed its growing population. Potash is used to make fertilizer, among others.

While aluminium, bauxite and nickel generate around 14% of the company’s revenues, combined they made up less than 1% of earnings before interest and tax (EBIT) in the last financial year. While a demerger of the assets into a separately listed company is likely to be the main aim, individual sales are not out of the question.

BHP has previously flagged to the market that it considers those divisions non-core, and would likely sell them off at the drop of a hat, if the company was offered a reasonable price.

According to the AFR, the assets up for sale as still being discussed, with BHP’s South African energy coal assets as well as manganese and zinc assets potentially being considered as part of the divestment. The AFR also suggests that BHP’s Hunter Valley energy coal assets should also be included.

BHP has long considered iron ore to be a long-term strategic asset, and was reportedly unfazed by the recent price drop below US$110 a tonne. Given the company diversification and long-term view, that’s no real surprise. Unlike major competitors Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Ltd (ASX: FMG), BHP generates less than half its earnings from iron ore.

Foolish takeaway

Should the company spin off its non-core assets into a separately listed resources company, shareholders are likely to receive shares in the newly formed company – similar to packaging group Amcor Limited (ASX: AMC) recent demerger of Orora Ltd (ASX: ORA). Demerged companies have tended to outperform in the past, as the new management are much more focused on driving cost efficiencies and higher revenues.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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